MSRB Rules 3
A municipal dealer must send a copy of the Final Official Statement to customers who purchase the new issue if: A one has been prepared by the issuer B the securities are rated below investment grade C the securities contain an embedded put option D the issue is an advance refunding
The best answer is A. The basic MSRB rule is that, if an Official Statement is prepared, it must be sent to customers at, or prior, to settlement. Also, under SEC Rule 15c2-12, municipal underwriters are obligated to perform due diligence on the Official Statement, and distribute the document to customers, for offerings of $1,000,000 or more. Note that the rule applies to underwriters, not issuers. The other choices are irrelevant.
A municipal dealer must provide a customer with a copy of the Investor Brochure: A at, or prior to, the opening of the account B annually C upon purchase of a new municipal issue D every 3 years
The best answer is B. Each municipal broker-dealer must send in writing to each customer annually: a statement that it is registered with the SEC and MSRB; the website address for the MSRB; and a statement as to the availability of an investor brochure that describes the protections provided by MSRB rules and how to file a complaint with the appropriate SRO (which is FINRA, since the MSRB cannot enforce its own rules).
If delivery of a coupon bond is made within 30 calendar days of an interest payment date: A the seller is entitled to the upcoming interest payment B the seller may detach the upcoming coupon and deliver a bank check in its place C the buyer must reimburse the seller for the amount of the interest payment D the buyer must notify the Uniform Practice Committee of the MSRB
The best answer is B. Coupon bonds that are delivered within 30 days of an upcoming interest payment may be delivered with the upcoming coupon detached and substituted with a bank check from the delivering dealer.
Under MSRB Rule G-19, a municipal representative, when making a recommendation to a customer: A must have reasonable grounds for making the recommendation B must have no reasonable grounds for believing that the recommendation is unsuitable C both of the above D neither of the above
The best answer is A. The MSRB's suitability rule (Rule G-19) requires that when making a recommendation, the associated person: must have reasonable grounds for making the recommendation, based upon information available from the issuer or other sources. Thus, the MSRB places a burden on the registered representative to understand the merits and risks of the security that he or she is recommending. must have reasonable grounds to believe that the recommendation is suitable for the customer in light of the "suitability information" collected by the firm from that customer.
A municipal dealer advertises that it is a market maker in Los Angeles paper. The dealer, however, fills customer orders for these securities by purchasing them from other dealers and by using the services of a municipal broker's broker. This advertising is: A false and misleading B acceptable as long as the appropriate disclosures are made to customers C acceptable if approved by a principal prior to use D acceptable as long as the dealer maintains inventory of at least 5 different Los Angeles issues
The best answer is A. A firm cannot advertise that it is a market maker if it really is not - this is false and misleading. Please do not confuse this with giving a quote for bonds that are not actually held in inventory; this is permitted as long as the dealer knows where the bonds can be purchased.
Records of municipal agency and principal transactions: I must be segregated II may be combined III must be retained for 4 years IV must be retained for 6 years
The best answer is A. Under MSRB Rule G-8, copies of agency and principal order tickets must be maintained separately and must be retained for 4 years. Note, in contrast, that the SEC rule for retention of records is 3 years.
Under MSRB rules, a municipal principal would be concerned with violations of which of the following? I Securities and Exchange Commission rules II State securities laws III Provisions of the Securities Exchange Act of 1934 IV Municipal Securities Rulemaking Board rules A IV only B II and III C I, III, IV D I, II, III, IV
The best answer is C. This question is the usual MSRB legal "hair splitter." The MSRB is only empowered under federal securities laws. It is in no way concerned with state securities laws, and has no legal authority to write regulations for the states. Thus, under MSRB rules, the principal has no supervisory obligations regarding state laws. The MSRB does require municipal principals to exercise diligence in monitoring compliance with MSRB rules, SEC rules and the applicable provisions of the Securities Exchange Act of 1934.
A municipal dealer may describe its relationship with the MSRB on its website or in its advertising: A under no circumstances B as a "MSRB Member" C as "MSRB Registered" D as "MSRB Affiliated"
The best answer is C. The MSRB permits the use of the MSRB name on a broker-dealer's advertising and website, but only by stating "MSRB Registered." The firm is not an MSRB member - FINRA is a membership organization and a firm can state that it is a FINRA member. The MSRB is simply a rulemaking board with which any broker-dealer that effects municipal transactions or engages in municipal securities business must be registered.
Under MSRB rules, advertising MUST be approved prior to use, by a: A Municipal Principal only B Municipal Sales Principal only C Municipal Principal or General Principal D Municipal Principal or Municipal Sales Principal
The best answer is C. The MSRB permits advertising to be approved by either the Municipal Securities Principal (Series 53) or the General Securities Principal (Series 24). Advertising cannot be approved by the Municipal Sales Principal (Series 9/10 - Branch Manager license).
Which of the following items would be violations of MSRB Rule G-20? I Employee bonus of $500 II Business dinner and a Broadway show with a new institutional customer costing in excess of $500 III Season's tickets to the New York Giants given to the firm's 10 largest customers IV Pen and pencil sets valued at $100 given to the firm's 10 largest customers A III only B I and II C II and IV D II, III, IV
The best answer is A. The MSRB prohibits the giving, or acceptance, of gifts in excess of $100 value per person per year related to the municipal securities business. Note that this does not prohibit a municipal firm from compensating its employees (Choice I); nor does it prohibit business entertainment as long as it is not too excessive or frequent (Choice II - though this was a pretty expensive dinner and show, but then again things are very expensive in New York). The $100 pen and pencil set is within the $100 limit. The gift of season's tickets to the New York Giants football games is clearly well in excess of the $100 value limit and would be a violation.
The Chief Executive Officer of a municipal securities broker-dealer lives in a community where he donated $500 to a campaign for a bond initiative ballot, asking for voter approval of a Special Tax Bond where the proceeds are to be used to build a new prison in the community. This action: A must be reported on Form G-37 and will result in a ban B must be reported on Form G-37, but will not result in a ban C is not required to be reported on Form G-37, but will result in a ban D is neither required to be reported on Form G-37, nor will be result in a ban
The best answer is B. MSRB Rule G-37, covering political contributions to elected officials' campaigns, is intended to stop municipal broker-dealer personnel from making large political contributions to such a campaign, expecting to be returned the favor by getting future underwritings from that municipality (at the direction of the elected official). Any contribution above $250 made by an MFP (Municipal Finance Professional) to an elected official's campaign in which the MFP is entitled to vote, will result in that municipal firm being banned for 2 years doing negotiated underwritings for that issuer. In addition, such contributions must be reported quarterly to the MSRB, which makes the information public, providing transparency (and embarrassment to the banned firm). The rule also states that if a contribution above $250 is made by an MFP to a campaign for a "bond initiative ballot," it must be reported on Form G-37 to make the contribution visible to investors and regulators, however there will be no ban because the contribution was not made to an elected official's campaign.
Which statements are TRUE when comparing Munifacts to the Daily Bond Buyer? I Munifacts is a newswire subscription service II Munifacts is a daily printed publication available in both paper and electronic form III The Bond Buyer is a newswire subscription service IV The Bond Buyer a daily printed publication available in both paper and electronic form A I and III B I and IV C II and III D II and IV
The best answer is B. Munifacts is a professional bond trader subscription service that gives details of new issue bond offerings, including a copy of the bond official statement and trust indenture; as well as secondary market information. The Bond Buyer is a bond industry newspaper that gives more general information about new issue offerings and general municipal market data. The Bond Buyer is available in newsprint and on the web, and is used by industry professionals - not by the general public
Under MSRB rules, an individual that acts as a financial advisor to a municipal issuer: A is not required to be registered since he or she is not dealing with customers B is required to be licensed as a Series 52 C is required to be licensed as either Series 53 or Series 9/10 D is required to be bonded for a minimum amount of $100,000
The best answer is B. The MSRB requires that anyone who helps municipalities structure their bond offerings (a municipal financial advisor) must be registered as a Series 52 Municipal Securities Representative. Effective November 7th, 2011, the MSRB will accept the Series 7 General Securities Representative for municipal selling activities only. Any other Municipal Representative function, such as working on bond underwritings, requires the Series 52 license.
Under MSRB rules, when must the identity of a customer who places a Group Net order be disclosed? A At the time of taking the order B At the time of order submission C At the time of order confirm D At the time of trade settlement
The best answer is B. The MSRB requires that syndicate members who place Group Net orders with the manager for new issue allocations must disclose the identity of the customer for whom the order is being placed at the "time of order submission."
Under FINRA rules, the presumptive basis for computing the mark-up on a debt security is: A the NBBO B contemporaneous purchases or sales of that security by that dealer C contemporaneous purchases or sales of that security by other dealers D the pricing of similar securities currently available in the market
The best answer is B. The presumptive basis for computing mark-ups and mark-downs on debt securities is contemporaneous purchases or sales of that security by that broker-dealer.
A municipal new account form MUST contain which of the following signatures? I Associated person introducing the account II Customer III Municipal principal accepting the account A II only B I and III C II and III D I, II, III
The best answer is B. There is no requirement to obtain a customer signature to open an account - this enables brokerage firms to open accounts over the phone. The associated person taking the information must sign the new account form; and the municipal principal must sign and accept the account. (Also note that most firms have, as their own compliance procedure, the requirement that the customer sign to open the account - but this is not an MSRB requirement.) Customer signatures are required on margin agreements and on any arbitration agreements used by the firm.
Under MSRB rules, dealers MUST maintain copies of the MSRB manual in which of the following municipal departments? I Trading II Underwriting III Sales IV Transaction clearing and processing A III only B I and II C I, II, III D I, II, III, IV
The best answer is C. A copy of the MSRB manual must be maintained in each office where municipal underwriting, trading, sales underwriting, research or financial advisory work takes place. The manual must be made available to customers upon request. There is no requirement to have the manual in the firm's "back office" where trades are processed and cleared.
If a municipal securities dealer makes a $1,000 political contribution to an elected official, the dealer would be prohibited from engaging in municipal securities business with the issuer for: A 6 months following the date of the contribution B 1 year following the date of the contribution C 2 years following the date of the contribution D 3 years following the date of the contribution
The best answer is C. If a political contribution is made by a municipal dealer to a political campaign, Rule G-37 restricts that dealer from engaging in municipal securities business with that municipal issuer for 2 years.
Under MSRB rules, which of the following is considered to be an advertisement? A Official Statement B Preliminary Official Statement C Summary of an Official Statement D Official Notice of Sale
The best answer is C. Summaries or abstracts of Official Statements are prepared by broker-dealer personnel, so they are defined as "advertising" under MSRB rules. In contrast, lawyer-prepared documents such as Official Statements, Preliminary Official Statements and Official Notices of Sale are excluded from the advertising rules.
Accrued interest on municipal bonds accrues up to: A but does not include, trade date B and includes trade date C but does not include, settlement date D and includes settlement date
The best answer is C. The amount of accrued interest on municipal bonds is computed on a 30 day month/360 year basis. Interest accrues from this date up to, but not including settlement date.
An associated person enters into an oral agreement with her customer that if she can produce a minimum 10% investment return per year in the customer's account, then any excess return will be split 50/50 between the associated person and the customer. Under MSRB rules, this arrangement is: A permitted without restriction B permitted only if the principal approves in writing C permitted only if documented in writing D prohibited under MSRB rules
The best answer is D. Sharing in gain (or loss) in a customer account, as is the case in this example, is only permitted under MSRB rules if: A joint account is opened with the associated person and the customer as owners; Sharing is in proportion to capital contributed and both gains and losses are shared; and The principal approves in writing. The description of the sharing arrangement given in this question does not even meet 1 of these tests, and thus would be prohibited.
Accrued interest on municipal bonds is computed on a(n): A actual day month/ actual day year basis up to, but not including trade date B actual day month/ actual day year basis up to, but not including settlement date C 30-day month/360-day year basis up to, but not including trade date D 30-day month/360-day year basis up to, but not including settlement date
The best answer is D. Accrued interest on both corporate and municipal bonds is computed on a 30-day month / 360-day year basis. Interest accrues up to, but does not include, settlement date.
The anti-fraud provisions of federal securities law apply to which of the following? I Municipal issuers II Institutional investors III Municipal dealers IV Associated persons A II and III B III and IV C II, III, IV D I, II, III, IV
The best answer is D. Municipal issuers are exempt from MSRB rules; and municipal issues are exempt securities that are not required to be registered under the Securities Act of 1933. However, the anti-fraud provisions of the Securities Exchange Act of 1934 apply to anyone who operates a fraud in any security - whether the security is exempt or non-exempt.
A customer living in Virginia has given discretionary trading authority to a municipal representative, with the instructions that only investment grade bonds be purchased. The representative selects "AA" rated state of Virginia G.O. bonds for the customer. This represents: A an unsuitable transaction unless specifically authorized by the customer B an unauthorized transaction unless approved by the municipal principal prior to the entry of the order C a suitable transaction because of the safety of the General Obligation pledge D a suitable transaction authorized in accordance with the discretionary agreement
The best answer is D. Since the representative selected "AA" rated bonds, this meets the customer's requirement that any selected bonds be "investment grade" (BBB or better). Thus, the bonds selected by the representative appear to be suitable. There is no requirement for discretionary orders to be approved by the principal "prior to entry" - they must be reviewed and approved "promptly." There is no requirement for discretionary orders to be specifically authorized by the customer, unless it is believed that the order is unsuitable. Since this order is suitable, this requirement would not apply.
Which statements are TRUE regarding the delivery of municipal securities? I Bearer bonds are delivered in units of $5,000 or $10,000 II Delivery may be made to an agent designated by the purchaser III A legal opinion need not accompany the delivery unless specifically requested at the time of the trade IV Delivery may be made physically or in book-entry form A I and III B I and IV C II and III D II and IV
The best answer is D. To be a good delivery, bearer bonds can only be delivered in either $1,000 or $5,000 denominations - making Choice I wrong. Delivery is normally made to the buyer's office, however the buyer can designate an agent to accept delivery (such as a bank). Thus, Choice II is correct. Legal opinions must accompany delivery of municipal bonds unless the bonds are identified as "ex legal" at the time of the trade. Thus, Choice III is wrong. Finally, securities can be delivered physically, or in book-entry form. Book-entry bonds are "certificateless" - the record of the owner is kept in a "book" only; no engraved certificates are issued. Thus, Choice IV is correct.